Thanks to some of the highest levels of inflation seen in more than four decades in 2022, Social Security retirees got a nice 8.7% bump to their benefits this year, which is much needed with consumer prices and inflation still quite high.
But Social Security's annual cost-of-living-adjustment isn't the only way retirees can increase their benefits. In fact, given the complex rules associated with the program, retirees and workers thinking about Social Security can take several measures to boost their benefits. Here's how to score an extra $1,983 per Social Security check or an additional $23,796 annually in higher benefits.
Boost your earnings as much as possible
The first thing to understand is that the Social Security Administration (SSA) calculates your primary insurance amount (PIA), the full benefits a retiree is entitled to at their full retirement age (FRA), based on the number of years a person works and how much that person makes. For people born in 1960 or after, their FRA is 67.
Image source: Getty Images.
Retirees will want to work for at least 35 years because the SSA calculates a retiree's PIA based on their 35 highest years of earnings. If a person works for, say, only 33 or 34 years, the SSA will still use 35 years but will enter a zero for the one or two years that person didn't report earnings. That can cut into your PIA significantly.
Another thing for retirees to consider when trying to boost their Social Security benefits is their actual earnings. Social Security is largely funded by payroll taxes, so the general idea is that the more taxes you pay into the system, the more you'll eventually get out. But the SSA can only tax earnings up to a certain amount, known as the benefit base. The benefit base was $147,000 in 2022 and $160,200 this year.
Now, obviously, you can't always control how much you make, but the general rule of thumb is to make as much as possible over your career to get the highest payout possible.
When you claim Social Security matters
Another big factor in determining a retiree's benefits is when they claim Social Security. Retirees can claim Social Security as early as age 62 and as late as 70.
But claiming Social Security early also results in a penalty. The SSA will reduce a retiree's benefits by 5/9 of 1% for each month they take benefits prior to their FRA. Following the first 36 months, benefits are reduced by 5/12 of 1%, so if you take benefits at 62 and your FRA is 67, that will result in a 30% haircut to a retiree's PIA.
Keep in mind this doesn't necessarily mean claiming benefits early is the wrong move. If you're 62 and your health isn't so great and you are struggling to cover all of your expenses, taking benefits early makes sense.
But, in general, if you can afford to wait, you should because each month a retiree delays benefits past their FRA, their benefits will increase by 2/3 of 1%. This amounts to 8% per year and 24% if your FRA is 67 and you delay until age 70, which is the longest you can delay.
How to score an additional $1,983 in monthly benefits
In 2023, if you earn the maximum benefits possible based on your earnings and begin claiming Social Security at age 62, the maximum monthly Social Security check you can receive is $2,572. But if you earn the maximum taxable earnings over 35 years and hold off on claiming Social Security until the age of 70, your monthly Social Security paycheck will be $4,555, $1,983 higher. It's certainly a significant amount that could help you afford your retirement goals.
